What are Black Candles?
They are bearish lines in candlestick and candlevolume charts. They signify that the closing is lower than opening for that time period.
They are part of Japanese candlestick charting which is an ancient Japanese method of technical analysis. They were used in trading rice in 1600's and rice contracts from 1710 onwards. They were well organised by Homma Munehisa who is often referred as the father of the Japanese Candlestick charting.
They have a rectangular body. The top of this rectangle represents opening price and the bottom represents the closing price for that trading period, which may be a minute, hour, day, week or a month. They will have vertical lines above and below the rectangular body, which are called as wicks, shadows or tails. The top of the upper wick corresponds to the high price and bottom of the lower wick corresponds to the lowest price, recorded in that time period.
Either of the top or bottom wicks may be short, long or missing. The body may be very short or long. All these variations and combinations give rise to different types candlesticks and their patterns.
Modern computerized charts allow them to be variously colored. Usually they are colored red or orange.
They represent bearishness of the market. If the real body is long with very short wicks, they indicate increased momentum in that time period. If the real body is very small as seen in Spinning Top they represent neutrality of the market.
If the upper wick is small or missing and the lower wick is twice the length of the real body, they form Hammer and Hanging Man pattern. Hammer at the end of a down trend, are bullish in nature. Where as Hanging Man pattern at the end of an uptrend are bearish in nature.
If the lower wick is small or missing and the upper wick is twice the length of the real body, then they form Inverted Hammer and Shooting Star pattern. Inverted Hammer at the end of a down trend, are bullish in nature. Where as Shooting Star pattern at the end of an uptrend are bearish in nature.
A black candlestick with out an upper or lower shadow form Marubozu Black candlestick. They represent strong bearish trend in the market.
There are many more simple candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.